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India’s Lucrative Retail Industry: A Rising Trend

The Indian retail market has witnessed a tremendous growth in the past decade. Its e-commerce industry is likely to cross the

The Indian retail market has undergone a significant transformation and has observed enormous growth in the past ten years. The overall market is set to cross the 1.75 trillion USD remarks by 2026 from 795 billion USD in 2017.

It is also worth noting that India’s e-commerce retail market, which stood at 30 billion USD in 2019, is set to grow at 30% CAGR for gross merchandise value worth 200 billion USD by 2026.

The Indian e-commerce sector is likely to grow at a 27% CAGR over the period 2019 to 2024. Market experts believe that it would reach 99 billion USD by 2024. Moreover, the direct-to-consumer sector could also have a hundred billion USD addressable market by 2025.

The number of households taking out online transactions in India is likely to grow from 154 million in 2020 to 233 million in 2025.

India ranks among the best nations to invest in retail space. Several factors make India attractive. It includes its world’s second-largest population, a middle class of more than 600 million people, increasing urbanization, connected ruler consumers, increasing household incomes, and rising consumer spending (1).

It is also worth highlighting that India ranked number 2 in the GRDI, Global Retail Development Index in 2019. Retail is the country’s largest industry, and it currently accounts for more than 10% of its GDP and 8% of its overall employment. Moreover, India also has open sourcing and investment rules for supermarkets. The recent policy changes allow 100% FDI under the automatic route for single-brand retail trading and 51% multi-brand retail trading (2).

The Indian Retail Industry

Indian Retail Market Size

Indian Retail Market Size

The Indian retail market is approximated to reach 1.7 trillion USD by 2026 from 0.79 trillion USD in 2018. It grows at a 9 to 11% CAGR, driven by economic and social demographic factors like income growth, urbanization, and nuclear families’ rise.

Meanwhile, the Indian e-commerce industry is also likely to cross the 200 billion USD mark by 2026 and is growing at a 30% CAGR with a market penetration of 12% compared to the present 2%.

Indian E-commerce Market

Indian E-commerce Market

Indian Online Retail

Last year e-commerce accounted for almost a third of several electronic categories, about a fifth of all apparel sales, and almost half of the smartphones sold in India.

It is worth highlighting that India is largely an unorganized retail market contributing 88% to its total retail sector. The organized retail market is presently valued at 60 billion USD while the unorganized market holds the rest. There are expectations that the share of the organized retail market would increase to 22 to 25% by the end of 2021 and reduce the unorganized retail market share to 77%; therefore, the organized retail market has the potential to reach approximately 140 to 160 billion USD (3).

Growth Drivers

  • Rising Household Incomes: The average household income in India witnessed a 3x increase and has reached about 18,448 billion USD in 2020 from over 6,393 USD in 2020.
  • The Surge in Online Spending: There are projections that digital spending in Indian would increase more than tenfold to 550 billion USD and account for over 35% of all retail sales by 2025. Online buyers would also increase from the existing 90 million to 350 million by 2025.
  • Rural Consumption Growth: Market estimations suggest that rural per capita consumption will increase 4.3 times by 2030, in contrast to 3.5 times in the Indian urban cities.
  • Young Millennial Households: The country would add more than 90 million new households added by Millennials born into liberalized India. The country’s average age would be 29 by 2025, with the largest skilled human resources pool of more than 600 million worldwide.

Moreover, India also has several advantages which would further boost the country’s retail sector.

  • Robust Demand: Healthy economic growth, increasing disposable income, changing demographics, changing consumer preferences and tastes would further drive growth in the Indian organized retail market.
  • Innovation in Financing: Indian consumers can go for durable products with easy credit because of bank and financial houses’ collective efforts.
  • Policy Support: The sector has GST as a single unified tax system.
  • Increasing Investments: The Indian retail sector has attracted private equity investment of about 1 billion USD in 2019.


The Indian retail sector has received FDI, foreign direct investment equity inflow of more than 3.35 billion USD from April 2000 to September 2020, according to DPIIT, the Department for the Promotion of Industry and Internal Trade.

With the surging requirement for consumer goods in different sectors, including home appliances and consumer electronics, several companies have invested in the Indian retail sector in the past few months.

The Indian retail sector had attracted more than 970 million USD from several private equity funds in 2019.

In September 2020, the US private equity firm Silver Lake announced its plan to invest over 1 billion USD in Reliance Retail, which marks its second billion-dollar investment in Reliance Industries subsidiary after the 1.3 billion USD investment in Jio Platforms earlier in the last year (4).

Walmart investments Cooperative USA invested about 37.68 million USD in Walmart India Private Limited. Walmart Inc is now planning to increase its export from India by three times to 10 billion USD by 2027, up from 3 billion USD at present (5).

Retail investors have also boosted their shareholdings in the Indian firms to an 11 year high in September 2020, with first-time investors continuing to pour more funds into equity shares.

According to Prime Database (7), the shareholding of retail investors in 1,605 listed companies reaches an 11-year high mark of 7.01 % and witnesses over 3.4 million new demat accounts from July 2020 to September 2020.

In November last year, the Chinese smartphone maker, OnePlus, launched ‘Oneplus Nizam Palace’ in Hyderabad, quoted as its largest experience store worldwide, spread across 16,000 square feet. The company also announced its plan to invest more than 13.51 million USD towards market penetration across the omnichannel retail business, including offline experience extension, which goes beyond the Indian metro cities with new retail collaborations (8).

Technology – The Great Enabler for Indian Retail Space

The coronavirus pandemic has resulted in far-reaching consequences for businesses and industries, and the Indian retail industry has been one of the most strained. The perceptively changing consumer behavior resulted in far-reaching consequences for the sector. But as in the case with every Black swan event, the retail industry fallout is likely to be positive in the long run.

Read Also: Consumer Behaviour and Trends Dominating Retail Industry in 2021

Indian retail consumers usually prefer personalized experiences. However, safety concerns and home delivery convenience have increased online transactions, further driven by magnified internet and smartphone penetration.

According to Bain & Co. research, online shoppers in India are expected to reach more than 300 million by 2025. A Redseer report points to an 85% surge in online shoppers in 2020 alone, attracted by huge deals and discounts, plus the convenience and safety of remote shopping.

In the initial two weeks of the festival time of the year in 2020, sales observed a 51% year-on-year growth against 2019, with 55% of shoppers coming from rural India. Consequently, major e-commerce players in the country, including Amazon and Flipkart, achieved about four billion USD sales in the last season alone (9).

With the convergence of offline and online, the Indian retail sector is all set to skyrocket. The emergence of m-commerce and social commerce is reinforcing the transformation. Driven by the startup ecosystem in the sector, social commerce is projected to become a hundred billion USD vertical of e-commerce, according to PayPal.

As more consumers use mobile devices for an in-store shopping experience, retailers are pushed to roll out special mobile applications for add-on services apart from online shopping and attracting young and tech-savvy Indian consumers.

Contrary to traditional belief, brick-and-mortar retailers can also look forward to big business opportunities. Even though most consumers are now finding online shopping more convenient, offline stores can also offer an experiential shopping experience. They can partner with online players to increase that rich and enhance the consumer experience by going to the Omnichannel. Vice versa, e-commerce players can also benefit from their partner’s online presence while offering them access to their online platform.

Huge e-retailers are offering digital infrastructure to offline stores. For instance, Amazon has onboarded more than 5,000 offline retailers across categories on its ‘Local Shops’ platform. The neighborhood stores use Amazon’s technology to fulfill most local orders based on area pin codes (10).

Similarly, Jio Mart, backed by Reliance Industries, is also connecting three crore offline retailers with more than 20 crore customers. The idea is to onboard the offline stores on the JioMart platform and benefit from their local market reach and knowledge.

Companies like Amazon, Shoppers Stop, and Starbucks are making investments to build their data analytics abilities by setting up data warehouses to aggregate customer interactions and transactions, both offline and online, to enhance the customer experience. It would help them in offering a ‘phygital’ customer experience on their stores and online platforms.

2021 is auspicious to be the year of technology-led fundamentals. It is time for retailers to rethink their business models and operating structures, indicating that Indian retail is at a crossroads. Companies that are agile enough to integrate digital in their everyday working seamlessly would have a much better chance of capturing the total market share in the country’s exciting modern trade market.

Despite the increasing urbanization across the country, the neighborhood stores would also continue to be relevant. During the coronavirus pandemic, they have demonstrated to be robust, having survived the modern trade growth. Highlighting that these stores make up more than 95% of India’s share of the grocery market. And the integration of offline stores with technology may herald a new era in their business. Even though there are several challenges in the post covid world, the Indian mind is permanently tuned into the offline retain phenomena.

Read Also: India’s Trillion Dollar Digital Opportunity – Illusion or Certainty?

The Future of E-retailing in India

The Indian e-commerce industry is expected to grow 200 billion USD by 2026 from 38.5 billion USD in 2017. There are expectations that the Indian e-commerce industry would become the second-largest worldwide by 2034.

On the other hand, the country’s e-retail industry is primed to reach over 300 to 350 million shoppers in the upcoming five years, properly online gross merchandise value, GMV, to 100 to 120 billion by 2026. It is worth highlighting that the 850 billion USD Indian retail market is the fourth largest market across the world (11).

The enormous growth in the industry is driven by the increasing base of the first-time internet and smartphone users, which is an outcome of the digital India campaign.

Apart from the growing online community, another aspect that has contributed to the growth of the country’s retail industry is the household essentials market’s unorganized nature. It has opened new avenues for e-commerce retailers or companies who understand the consumer psyche and can curate quality services and products in sync with today’s consumers’ requirements and drive them into the organized sector’s fold.

As organizations continue to innovate and onboard millions of shoppers, it is interesting to explore the major attractions that are likely to be prominent in the sector in 2021

There is no doubt that the reality of online shopping would be further enhanced by Augmented Reality. AR would become a major game-changer when it comes to online shopping as it would significantly close the gap of ambiguity. It would help consumers visualize and decide the product they want to purchase. Before pressing the buy now button with AR, they would be able to decide whether the furniture they are purchasing would look good in their homes or not. It will bring comparison for shoppers to a whole new level and help them overcome the hurdle of not seeing the product first-hand (12).

There also would be a significant number of people using voice search. These days right from setting the alarm to checking the weather to buying products online, people rely on voice assistants like Amazon Alexa and Google Assistant. Hence, one thing that we all will see in the future is that people would also start ordering groceries with a simple voice command as it will save a lot of time on browsing, especially if it is a repeated order. We will not have to enter the brand, the address and the payments, and the shipping information repeatedly. Therefore, retailers and businesses looking to get into the ground floor have a lot of untapped potentials (13).

While we’re on the shopping experience improvement, chatbots in the coming time would serve the role of the break and motel, a greeter, and a salesperson. It would be used to help the company as they would be able to communicate effectively with hundreds of customers and give them the feeling of personal attention and offer them thoughtful recommendations based on their responses.

According to a study (14), people prefer to have a conversation with boards and other digital self-serving tools for a faster response. chat boards are likely to drastically change the way people shop online and become one of the essential marketing tools

For retailers, subscription plans have several advantages. It makes it easier to predict fulfillment requirements and allows businesses to maintain and retain customers for a greater long-term value. Hence more and more companies offer subscription services or monthly payment options for their customers’ purchases in the upcoming years (15).

One topic in the Indian retail factor that is getting a lot of traction is sustainability. We sincerely hope that it is not a passing trend. As more and more people are becoming aware of their roles and their purchasing decisions on earth’s limited resources, brands are now pushed to find ways to weave into their product, marketing, and fulfillment strategies.

Brands working on improving their operations by working on initiatives such as having biodegradable packaging, going paperless, working on behalf of the environment, or using recyclable supplies would undoubtedly have a strong impact on their customers’ buying decisions (16).

Apart from the above in the current year, the Indian retail industry is also expected to increase export revenues and increase tax collection. Moreover, the sector has grown by itself, but it also has a cascading effect on allied industries, especially MSMEs. Collaborating with MSME firms has helped e-tailers expand their sourcing capacity and procurement while also offering MSMEs’ business growth.

While the Indian e-retail industry is on a strong growth trajectory, the e-retailers still face certain challenges in India. Some customers return much of the products they purchase online as there are many first-time buyers, and they are not certain what to reckon from e-commerce websites. Hence, they fall prey to hard sell, and when they finally get the product, they regret their purchasing decisions and end up returning it. In turn, it increases the cost as returns are extremely expensive for e-commerce firms. Another challenge that e-retailers often face is the postal address is not correct. It becomes difficult for the company to deliver the product to the customer, which affects the delivery partner’s delivery capacity.

One of the major issues that the retail Industry still faces in India is maintaining a robust supply chain.

Even though there are still several challenges in India, it is one of the most attractive emerging markets, and e-retailing is one sector that is capable of doing a lot.

New Business Model and opportunities

The digital has proven to be a godsend for consumer goods retailers. As last-mile delivery was disrupted during the coronavirus outbreak, they ramped up their efforts to implement D2C programs.

FMCG Companies, including ITC, Hindustan Unilever, Modelez, Dabur, Gamble, and Procter, collaborate with delivery-based startups such as Swiggy and Dunzo to fulfill their business demands. At the same time, some have also created their own online portals and mobile applications to sell directly to their consumers. It offers higher brand visibility, better margins, enhanced shopping experience, and better control over promotions and prices (17).

As retailers and brands have overcrowded metros and tier-1 cities across the country, now they are paving the path for magnifying into developing and smaller cities. Tier-2 and tier-3 cities are emerging as big business opportunities for offline and online retailers. The widespread surge in average household incomes, improvement in last-mile delivery, hyper-local business model enabling effortless access, and infrastructure growth.

Read Also: Transformation of Indian Logistics Tech Ecosystem

Indian government initiatives

The Indian government has taken many strategies to ramp up the country’s retail Industry. The government may change FDI rules in food processing to permit e-commerce companies and foreign retailers to sell Made-in-India consumer products (18).

The country’s government has allowed a hundred percent FDI in the online retail of goods and services via the automatic routes and hence provided clarity on the existing businesses of e-commerce firms operating within the country.

Final note

The Indian e-commerce sector is expanding steadily in recent years. Consumers have an ever-increasing selection of products at the lowest rates. The sector is probably building the biggest revolution in the Indian retail industry, and the trend is likely to continue in the years to come.

It is time for retailers to leverage digital retail channels e-commerce, which would enable them to spend less money on infrastructure while reaching out to more customers in tier 2 and tier 3 cities across the country (19).

There are projections that by the end of 2021, traditional retail would hold a major share of 75% and the organized retail sector would reach 18%, and retail e-commerce share will reach 7% of India’s total retail market (20).

Nevertheless, the Indian retail Industry’s long-term Outlook looks positive with further support from the rising income entry of foreign players, favorable demographics, and increasing urbanization.